I’m pleased to report that EcoAlign, the marketing arm of the Distributed Energy Financial Group, has issued a white paper I wrote, “Markets, Technology and Institutions: Increasing Energy Efficiency Through Decentralized Coordination”. From the press release:
EcoAlign, a strategic marketing agency focused on energy and the environment, has released the second report in the Project Energy Code series. “Markets, Technology and Institutions: Increasing Energy Efficiency Through Decentralized Coordination,” was written by distinguished economist Dr. Lynne Kiesling. The report explores “decentralized coordination” and “centralized control” as competing approaches to achieve energy efficiency. Dr. Kiesling finds that decentralized coordination is more effective at closing the “green gap” — the difference between consumers’ stated intentions regarding the environment and their actions or behaviors in making investment and consumption decisions.
The paper discusses new infrastructure technologies that increase consumer awareness of electricity consumption and the ability of consumers to change their behavior. These infrastructure technologies facilitate economic decision-making through decentralized coordination and can increase energy efficiency and close the green gap.
The essay focuses on how technological change, particularly intelligent digital end-use devices, makes decentralized coordination possible in this industry that historically has had to rely on top-down physical and economic hierarchical control. Decentralized coordination, arising from these new technologies, from new products and services, and from policies that allow these products and services to enter retail markets, empowers individual consumers to make their own energy consumption decisions, and to control and manage their own energy use. It gives them tools and options for acting on their environmental values, and it makes clear and transparent the alignment between economic incentives (saving money) and environmental incentives (reducing resource use). The essay also discusses the cognitive characteristics of real human decision-making, such as risk aversion, status quo bias, loss aversion, and the use of heuristics to make choices in an information-rich and a complex environment. Policies that fail to account for these traits will lead to unintended consequences, and intelligent end-use technologies enable individual consumers to overcome many of these traits. Overcoming them at an institutional level, though, is a large challenge — a century of cost-based economic regulation has embedded inefficient loss aversion in both regulators and the regulated.